VAT Withholding Application for Repair, Maintenance, and Modification Services for Machinery, Equipment, Fixtures, and Vehicles
In section (3.2.3) of the VAT General Communiqué No. 117, it is stated that a 5/10 VAT withholding will be applied by the buyers for repair, maintenance, and modification services rendered to machinery, equipment, fixtures, and vehicles owned by or allocated to those listed in section (3.1.2/b) of the Communiqué.
Repair, maintenance, and modification services for machinery, equipment, fixtures, and vehicles owned by or allocated to the individuals or entities listed in section (3.1.2/b) and used in their operations are subject to withholding.
Example 1: If modifications such as adding a container, tank, or similar components are made to a truck chassis purchased by (A) A.Ş., whose shares are traded on the Istanbul Stock Exchange (ISE), the VAT calculated on the modification costs will be subject to withholding.
Example 2: (A) public institution has signed an agreement with (X) Software and Automation Company to establish an automation system.
Under this contract, services such as software provision, post-sale updates, maintenance, etc., related to the automation systems are also provided.
For services related to the necessary operating system software for using the automation systems and computers, such as modifications, troubleshooting, renewal, maintenance, updates, etc., 5/10 of the calculated VAT will be subject to withholding by (A).
Maintenance and repair services for heating-cooling systems, ventilation systems, sound systems, video systems, lighting systems, elevators, and similar items will be subject to withholding under this section. However, the initial construction or complete renovation of these systems will be subject to withholding under section (3.2.1) of the Communiqué.
Maintenance services for machinery, equipment, fixtures, and vehicles involve activities performed periodically or as needed to ensure they function as expected. Replacing certain parts and components of the maintained item is an integral part of this service.
Repair services for machinery, equipment, fixtures, and vehicles involve restoring damaged or worn-out items to a usable condition. As in maintenance services, replacing certain parts of the repaired item is a natural outcome of the service.
Therefore, maintenance and repair services for machinery, equipment, fixtures, and vehicles are not limited to labor alone; the provision of materials, spare parts, and consumables is also included in these services.
However, if materials, spare parts, and consumables to be used in these services are purchased by the party commissioning the modification, maintenance, or repair from the market and then provided to the service providers, VAT withholding will not be applied during the purchase of these goods from the market, subject to the explanations in section (3.3) of the Communiqué.
Source: VALUE ADDED TAX CIRCULAR/60
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
